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Goldman Sachs should break itself up, a former partner at the firm says.

Roy C. Smith, a professor at New York University's Stern Business School, has written an opinion piece for Financial News arguing that Goldman would be worth more if it broke itself up. The problem, he writes, is that Goldman is trying to combine capital heavy hedge fund and private equity like investing with less capital-intensive investment banking. Each of the parts would do better on its own.

Within Goldman Sachs, for example, lurks the equivalent of a Blackstone (hedge funds, private equity, credit, real estate, and other investments), which could be distributed to shareholders.

At 1.8 times book value, Blackstone had a market capitalization of around $8 billion on June 30 on $129 billion of assets under management.

Goldman manages $148 billion of alternative assets and in addition a substantial “lending and investing” (proprietary trading and investing) business that produced first half net revenues of $3.7 billion.

This “Blackstone,” with well less than $50 billion of assets on its own balance sheet, may not be declared a “systemically important” non-bank but, even if it is, its future capital requirements are likely to be much less stringent and more manageable than those of a full-fledged bank, which Goldman Sachs now is.

Part of the issue is regulatory. With higher capital requirements from regulators, there just isn't much money to be made by a bank engaging in proprietary trading. Hedge funds and private-equity firms can make money doing these things in part because they have much lighter regulatory burdens.